Thursday, October 20, 2011

Food Prices Are Still A Concern

The food index, which rose 0.5 percent in August, increased 0.4
percent in September. The index for food at home repeated its July
and August increase of 0.6 percent. The index for nonalcoholic
beverages was unchanged, while the remaining major grocery store food
groups all posted increases. The dairy and related products index
rose the most, increasing 1.2 percent, followed by 0.9 percent
increases in both the cereals and bakery products index and the
fruits and vegetables index. Within the latter group, the indexes for
apples and tomatoes both posted significant increases. The index for
meats, poultry, fish, and eggs rose 0.4 percent as the index for eggs
rose sharply, and the index for other food at home rose 0.6 percent.
The food at home index has now risen 6.3 percent over the past 12
months with the dairy index up 10.2 percent over that period. After
rising 0.4 percent in August, the index for food away from home
increased 0.2 percent in September and has risen 2.6 percent over the
last 12 months.

Let's go to the charts:

First, I use January 1, 1985 as the starting point because this is mid-way through the decade after Volcker wrung inflation out of the economy. Secondly, overall food inflation is still moving higher at strong rates. While the economy of the 1980s could handle current YOY levels, the economy of the early 2000s could not. In short, this chart is pretty concerning.

Meat, fish, poultry and eggs are increasing at strong rates, although YOY prices increased reached this point before without causing a recession.

Fruits and vegetables are also increasing, but, again, at rates the economy has withstood before.

Daily prices are also at high levels.

Food at home is increasing at strong paces.

My concern with the above numbers is these are price increases we see every day -- or at least once a week. As such, we are aware of them in a pretty big way. And the kinds of increases the charts are showing are enough to slow purchases of other items, thereby lowering overall aggregate demand.